IP: Cloudy weather for network television or are clearer skies ahead?

On Jan. 10, 2014, the U.S. Supreme Court agreed to hear an appeal from the nation's broadcast networks over Aereo Inc.’s controversial online television service, setting the stage for a potentially final resolution of a long-running copyright dispute that has tremendous implications for the economics of television, cloud computing and Internet streaming.

Using thousands of tiny, dime-sized antennas, Aereo, as well as a similar service FilmOn, pick up free broadcast television signals and send that programming to their own customers over the Internet for $8 to $12 per month. The networks contend that Aereo and FilmOn are stealing, but lawsuits aimed at shutting down both services have met with varying success.

Aereo’s users technically lease the tiny antennas, which the company claims allows it to legally avoid paying copyright royalties to the networks. The networks requested high court review in October 2013, and Aereo took the unconventional legal position of agreeing with the networks to review a case it had already won, explaining that it wanted to fight on the merits, rather than wage a “wasteful war of attrition.”

The key issue in the case is whether retransmission by the systems created by Aereo and FilmOn constitutes a public or private performance of copyrighted content under the Copyright Act's transmit clause. Aereo and FilmOn argue their antennas result in a private performance of free content between one antenna and one viewer. The networks claim it is an illegal public performance broadcast simultaneously to potentially millions of network customers.

Different federal courts have reached conclusions that are polar opposites. Judges in California and Washington D.C. ruled that FilmOn likely violates copyright law, while judges in New York and Massachusetts have held that Aereo’s service was a private performance. The New York ruling was affirmed by a divided 2nd Circuit in April and is the decision technically up for Supreme Court review. The hearing will most likely take place this April, with a ruling expected by July. (Interestingly, Justice Samuel Alito has recused himself from the case. No reason was given for this withdrawal, in accordance with the Supreme Court's rules; but if the Court’s deliberation ends in a 4-4 tie, the 2nd Circuit ruling in favor of Aereo would automatically be affirmed.)

On Jan. 13, the first day that they could, the networks filed an emergency motion asking the D.C. Circuit to halt proceedings in their case against FilmOn until the Supreme Court rules in the Aereo case. In their motion, the networks argued that because Aereo’s and FilmOn’s services were “materially identical,” the Supreme Court’s decision in Aereo will necessarily address the same questions of law presented in the D.C. Circuit case.

FilmOn plans to oppose the networks' request because the company feels that the lower’s court’s decision enjoining its service was wrongly decided; FilmOn is not interested in waiting for the Supreme Court’s opinion in the Aereo case. FilmOn believes that it should get the D.C. Circuit’s opinion on the legality of its services as soon as possible.

FilmOn’s contention notwithstanding, for all intents and purposes, the Supreme Court will now have the final say — a move that would hopefully result in a clean, uniform ruling on what exactly constitutes a public performance of copyright-protected broadcast television.

This is not likely to be a narrow decision, and a key aspect of the decision will be its consequences for how we as a society balance innovative technologies that use copyrighted works with the ability of copyright owners to protect those works and benefit from them financially.

The case will also have major economic implications for the television industry. The legality of Aereo-like free retransmissions implicitly calls into question the billions of dollars that the networks currently charge traditional pay-television companies in retransmission consent fees. Those fees were at the heart of a recent spat between CBS and Time Warner Cable that led to an unprecedented, month-long CBS blackout for more than 3 million Time Warner Cable subscribers.

The major content companies and sports leagues have already threatened to move their programming to pay channels if they lose the case. Late last year, for example, the National Football League and Major League Baseball warned that if Aereo prevails, the leagues might move high-profile broadcasts like the Super Bowl and World Series to cable.

Not surprisingly, according to people with knowledge of the companies’ plans, DirecTV, Time Warner Cable Inc. and Charter Communications Inc. are all considering the same approach as Aereo, themselves capturing free broadcast-TV signals to avoid paying retransmission fees. A Supreme Court ruling favoring Aereo also would affect local broadcasters, which negotiate their own deals with pay-TV operators. A victory for Aereo could undermine the value of billions of dollars in acquisitions.

A ruling in favor of Aereo's interpretation of the performance right would also signal a broader willingness on the part of the high court to embrace a less restrictive approach to copyright law in order to accommodate new technologies and content-distribution models — even at the expense of the control held by copyright owners.

On its surface, the Aereo case seems like it is all about television. But it could have larger impact on the developing market for Internet streaming and cloud computing. Aereo has received legal backing from a Silicon Valley consortium that represents companies including Google, Yahoo, Facebook and Pandora, who have argued that a loss for Aereo could threaten cloud computing in general. Aereo’s defense, which relies on an earlier court decision that gave Cablevision the right to create a “cloud DVR,” is based on the notion that its users — not the company itself — are the ones pulling down programming over the Web. If the court rules against Aereo, tech firms say that all kinds of Web-based storage and transmission may be at risk.

While the Supreme Court interprets laws as they exist, the legislature can always create new laws and effectively overrule the Supreme Court’s decision. If Aereo prevails at the Supreme Court, Congress and the FCC will feel pressure to introduce new laws to force Aereo to pay retransmission fees like other distributors. And the networks will most likely not go down without a legislative fight, if the Supreme Court does not go their way.

Would an eventual Aereo victory be good for viewers? Short term, audiences would gain more control over what they watch; but they might have to pay more for it. Aereo’s CEO has stated that he hopes the success of the service will lead to consumers being able to buy a “rational bundle” of channels, which must contrast with what he thinks is currently available – a less expensive irrational bundle of stations.

So cheaper television with less choice? Or more expensive TV that gives you exactly what you want? Soon you may be have that choice — and be forced to make it.